Movies at Home, for $20,000

A proposed service aims to bring movies to homes the same day they hit theaters, a milestone that Hollywood has long anticipated with a mixture of fear and fascination.

But there's a catch: At the prices currently being discussed by Prima Cinema Inc., the start-up that is touting the service, those movies will reach only world's the best-appointed living rooms.

Prima plans to charge customers a one-time fee of about $20,000 for a digital-delivery system and an additional $500 per film. The Los Angeles-based company has around $5 million in backing from the venture arm of Best Buy Co.BBY0.53% and General Electric Co.GE-0.08%'s Universal Pictures, and hopes to start delivering movies to customers as soon as a year from now.

The steep price has been met with mixed reactions in Hollywood. Some executives question whether it will be possible to build a market beyond a few thousand users. (Prima says it plans to install its systems in 250,000 homes within five years.) Others say the high price would create an exclusive, super-premium niche market without cutting into existing sources of revenue.

"While this is a niche market, there is a chance for significant upside," says Adam Fogelson, chairman of Universal Pictures, which holds a minority stake in Prima. "And precisely because it is a niche market, that upside should come without harming any of our existing partners or revenue streams."

"We're not here to replace anything, "says Mr. Pang, who was involved with other video technology companies before founding Prima. "We are trying to create new revenue streams for studios and new viewing opportunities for moviegoers."

The proposed system represents a twist in an ongoing debate over the future of "release windows," the practice of staggering the distribution of movies through different channels to maximize profits in each. Traditionally, that has meant a movie hits theaters first, followed several months later by DVDs, video-on-demand, subscription-cable channels, and so on.

The windowing system has already come under pressure amid plummeting DVD sales and rising digital piracy. And consumers have grown accustomed to receiving entertainment content more readily than they used to.

One hot-button issue in that debate has been an early, "premium" video-on-demand window, in which cable subscribers could pay $30 or so to watch a movie a month or two after its debut in theaters.

Studios no longer make as much from DVDs. U.S. consumer spending on DVDs is down about 20% in 2010 from 2009, to $7.8 billion, according to media-tracking firm IHS Screen Digest. DVD spending is down 43% from its 2006 peak of $13.7 billion.

At the same time, consumer spending on video-on-demand services rose 17% in 2010 from 2009, to $1.4 billion, according to IHS.

Prima has met with all six major studios as well as several of the smaller, independent ones about licensing their films. Prima anticipates that several of them will sign on when the company launches its service in late 2011.

A handful of entertainment-industry power brokers and other wealthy individuals, known as "the Bel-Air circuit," for years have received free prints of first-run movies from studios to show in their home screening rooms. Prima would make first-run movies available to a larger audience—those willing to pay—and would generate revenue for studios.

Theater owners generally object to the idea of premium video-on-demand, saying it would disrupt their business. The president of the National Association of Theatre Owners John Fithian, who was briefed on Prima, says the exhibitors reaction to Prima's model would "be decided on an individual company basis." Still, he says, most exhibitors aren't in favor of systems that impinge on movie-going.

The Prima model "makes very little sense as it risks millions to make pennies" by exposing movies to the possibility of piracy early on, Mr. Fithian says. "There is no such thing as a secure distribution to the home," he adds, noting, "This proposal will give pirates a pristine digital copy early, resulting in millions of lost revenue to piracy, while at the same time selling a very limited number of units. Only billionaires can afford $500 per movie."

Prima isn't the only company trying to bring movies to homes faster. Time Warner Inc.,TWX-0.45% which owns Warner Bros., has said it expects to test an early-release offering with a new film as soon as next year. Under the program, consumers would pay roughly $20 to $30 to watch digital copies of movies within a month or two of their release in theaters.

Sony Pictures offered its 2008 Will Smith film "Hancock" and its animated 2009 "Cloudy with a Chance of Meatballs" early to users of its Bravia TV before the films were out on DVD. "It's clear that there is a big white space between the theatrical and DVD releases of movies that content companies can fill without cannibalizing folks on either side of the spectrum," Sony Corp. of America Chief Financial Officer Robert Wiesenthal said at a media-business conference in New York Tuesday. "There's a real consumer desire for an early, premium offering in the home."

But not every studio is in favor of early offerings. Viacom Inc. Chief Executive Philippe Dauman said Monday that his company isn't one of the conglomerates considering a new premium video-on-demand service. "We want to satisfy our theater distributors," said Mr. Dauman on Monday, also at the UBS investor conference. Viacom owns Paramount Pictures, but is controlled by Sumner Redstone's closely held National Amusements Inc., which also owns a movie-theater business.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.